UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Quarterly Period Ended June 30, 2000
Commission File Number 0-30601
WHY USA FINANCIAL GROUP, INC.
(Exact name of the small business as specified in its charter)
8301 Creekside #101
Bloomington, MN 55437
(Address of principal executive offices)
(Zip code)
(952) 841-7062
(Registrant's telephone number, including area code)
Nevada 87-0390603
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports) YES [X] NO [ ],
and (2) has been subject to such filing requirements for the past 90 days.
Yes[ ] No [ X ]
The number of shares outstanding of the Registrant's Common Stock, 0.001 par
value, as of June 30, 2000 was 31,400,460; the Company also had an additional
1,114,750 shares subscribed for and reserved for issuance at June 30, 2000.
<PAGE> 1
WHY USA FINANCIAL GROUP, INC.
INDEX
PART I. Financial Information Page
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets at June 30,
2000 (unaudited) and December 31, 1999........................4
Unaudited Consolidated Statements of Operation and
(Accumulated Deficit) Retained Earnings for the three
months and six months ended June 30, 2000 and 1999............5
Unaudited Consolidated Statements of Cash Flows for
the six months ended June 30, 2000 and 1999...................6
Unaudited Notes to Consolidated Financial Statements.........6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation............................7
PART II. Other Information
Item 1. Legal Proceedings............................................15
Item 2. Changes in Securities........................................15
Item 3. Defaults Upon Senior Securities..............................15
Item 4. Submission of Matters to a Vote of Securities Holders........15
Item 5. Other Information............................................15
Item 6. Exhibits and Reports on Form 8-K.............................15
Signatures............................................................17
<PAGE> 2
PART I- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Financial Statements
WHY USA FINANCIAL GROUP, INC.
For the Six Months Ended June 30, 2000
(Unaudited)
<PAGE> 3
WHY USA FINANCIAL GROUP, INC.
Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
2000 1999
------------ -------------
Assets
Current Assets:
Cash $ 351,682 $ -
Accounts receivable 35,739 32,407
Notes receivable 468,210 3,210
------------ -------------
Total Current Assets 855,631 35,617
------------ -------------
Fixed Assets:
Furniture and equipment 60,177 14,572
Accumulated depreciation (7,771) (4,863)
------------ -------------
Net Fixed Assets 52,406 9,709
------------ -------------
Other Assets:
Franchise acquisition costs 2,009,589 1,994,589
Amortization of franchise costs (83,316) -
------------ -------------
Net Franchise Acquisition Cost 1,926,273 1,994,589
------------ -------------
Patent application 5,000 5,000
Investment in preferred stock 100,000 -
Advances to former officer - 70,619
------------ -------------
Total Assets $ 2,939,310 $ 2,115,534
============ =============
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 9,301 $ 200
Deferred revenue on future conference - 5,729
Due to Northwest Financial Group, Inc. 95,928 18,391
Loan from officer - 26,400
------------ -------------
Total Current Liabilities 105,229 50,720
------------ -------------
Deferred Income Taxes Payable - 3,000
Shareholders' Equity
Preferred stock: no par value, authorized
50,000,000, no shares issued and outstanding - -
Common stock: $.001 par value, authorized
250,000,000, 31,400,460 issued and outstanding
as of December 31,1999 and June 30, 2000 31,400 31,400
Shares subscribed and reserved for
issuance- 1,114,750 shares 1,114,750 -
Additional paid in capital 2,406,148 2,022,698
(Accumulated deficit)/Retained earnings (718,217) 7,716
------------ -------------
Total Shareholders Equity 2,834,081 2,061,814
------------ -------------
Total Liabilities and Shareholders' Equity $ 2,939,310 $ 2,115,534
============ =============
See accompanying notes to consolidated financial statements.
<PAGE> 4
WHY USA FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
30-Jun 30-Jun 30-Jun 30-Jun
2000 1999 2000 1999
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Mortgage loan originations $ 156,430 $ 245,445 $ 323,505 $ 381,324
Franchise fees - real estate 96,030 - 154,006 -
New franchise sales 31,000 - 51,000 -
------------- -------------- ------------- -------------
Total Revenue 283,460 245,445 528,511 381,334
------------- -------------- ------------- -------------
Expenses:
General & Administrative 160,267 35,624 726,042 45,460
Mortgage loan origination fees 122,173 128,821 271,108 196,836
Franchise costs - real estate 15,272 - 47,452 -
Marketing costs and travel 79,080 - 131,951 -
Interest (income) (5,011) - (5,333) -
Depreciation 1,821 199 2,908 342
Amortization franchise
acquisition cost 41,762 - 83,316 -
------------- -------------- ------------- -------------
Total Expenses 415,364 164,644 1,257,444 242,638
------------- -------------- ------------- -------------
Income from continuing
operations (131,904) 80,801 (728,933) 138,696
Income from discontinued
operations - 7,261 - 7,261
(Income taxes) benefit -
continuing operations - (27,000) 3,000 (44,000)
------------- -------------- ------------- -------------
Net Income (loss) (131,904) 61,062 (725,933) 101,957
------------- -------------- ------------- -------------
(Accumulated deficit)Retained
Earnings beginning of period (596,313) 40,895 7,716 -
------------- -------------- ------------- -------------
Accumulated deficit, retained
earnings - end of period $ (718,217) $ 101,957 $ (718,217) $ 101,957
============= ============== ============= =============
Weighted average shares
outstanding 31,400,460 10,000,000 31,400,460 10,000,000
============= ============== ============= =============
Net income(loss) per common share:
Continuing operations $ (0.004) $ 0.005 $ (0.023) $ 0.009
Discontinued operations $ (0.000) $ 0.001 $ (0.000) $ 0.001
Net income (loss) $ (0.004) $ 0.006 $ (0.023) $ 0.010
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 5
WHY USA FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30, June 30,
2000 1999
------------ -------------
Cash Flows from (used in) Operating Activities:
Net income (loss) from continuing operations $ (725,933) $ 94,696
Adjustments to reconcile net income to net cash flow
Provision for depreciation and amortization 86,224 342
Deferred tax benefit (3,000) -
Common stock issued for compensation 390,000 -
------------ -------------
Increase (decrease) in Cash Flow from
continuing Operating Activities (252,709) 95,038
------------ -------------
Discontinued operations cash flow - 13,433
Changes in Operating Assets and Liabilities:
Decrease (increase) in accounts & notes receivable (468,332) 2,000
Increase in accounts payable 9,101 -
Increase in income taxes payable - 44,000
Increase in deferred conference revenues (5,729) -
------------ -------------
Total Change to Operating Assets an Liabilities (464,960) 46,000
------------ -------------
Net Cash from Operations (717,669) 154,471
------------ -------------
Cash Flows Provided By (Used) in Investing Activities:
Building acquisition and improvements - (422,723)
Capital expenditures - computers/equipment (45,605) (4,235)
Capital expenditures - franchise cost (15,000) -
Investment in preferred stock (100,000) -
------------ -------------
Net Cash Provided by (Used)
in Investing Activities (160,605) (426,958)
------------ -------------
Cash Flows Used in Financial Activities:
Net proceeds of common stock sold 1,108,199 -
Advances from Northwest Financial Group, Inc. 148,157 3,632
Mortgage and building loans - 404,818
Advances payments to officers (26,400) -
------------ -------------
Net Cash Used in Financing Activities 1,229,956 408,450
------------ -------------
Net Increase in Cash and Cash Equivalents 351,682 135,963
Cash and Cash Equivalents at Beginning of Period - 22,731
------------ -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 351,682 $ 158,694
============ =============
Supplemental Non-Cash Activities
Supplemental Cash Flow Information:
Cash Paid During the Year for:
Interest Expense $ - $ -
Income Taxes $ - $ -
See accompanying notes to consolidated financial statements.
<PAGE> 6
WHY USA FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2000
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three and
six month periods ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2000. The
accompanying consolidated financial statements and notes should be read in
conjunction with the audited financial statements and notes thereto included
in the Company's December 31, 1999 financial statements in the Company's Form
10-SB12G as amended.
Certain amounts in the financial statements of prior periods have been
reclassified to conform to the presentation used for three and six-month
periods ended June 30, 2000.
NOTE 2 - NATURE OF BUSINESS
The company sells real estate franchises under the Why USA name and originates
loans under the Northwest Financial Ltd. name. The company does not service
or retain the loans, which it originates. Operations are conducted throughout
the United States, however the majority of the company's current income stream
is derived from the Midwestern states of Wisconsin, Minnesota, Iowa and
Nebraska. The company is actively marketing its franchise systems in Texas,
California and Arizona and eventually seeks to cover the entire continental
U.S.A. The company's business is impacted by the seasonality of real estate
sales from which it derives its franchise fees. The company's 2nd and 3rd
quarters have appreciably higher activity than the 1st and 4th quarters. The
company's mortgage origination business is strongly influenced by both the
refinancing of mortgages and new mortgage loan originations for residential
homes. The company's operations are negatively impacted when interest rates
rise and favorably impacted when interest rates drop. Currently, the company
is focusing on integrating its mortgage loan origination business with its
real estate franchisees.
NOTE 3 - PRIVATE PLACEMENT OF COMMON STOCK
The company recently completed the private placement of 1.5 million units at
$1.00 per unit which consists of one share of common stock and one 3-year
warrant excisable at $1.00. The private placement was offered under
Regulation D Rule 506 exemption because it is not publicly soliciting
investors and the company has limited solicitation to sophisticated investors
and business affiliates of officers and directors. The company closed its
offering on August 31, 2000 with $1,500,000 in proceeds.
NOTE 4 - NOTES RECEIVABLE
The company has advanced an affiliated entity $240,000 on a short term basis
to fund mortgage loan originations and has advanced $145,500 to an affiliated
title company for operations and to promote future business referrals. These
notes bear interest at 8% and they are due upon demand by the company. The
company has also advanced $65,000 to two non-affiliated mortgage origination
companies to promote mortgage loan origination business. These notes bear
interest at 8% and they are due upon demand by the company.
<PAGE> 7
NOTE 5 - PREFERRED STOCK INVESTMENT
The company has invested $100,000 in a 8% non-cumulative preferred stock of
America's Cashline to promote mortgage loan originations from associated
entities. America's Cashline specializes in doing B and C credit
(non-conforming) residential mortgages.
NOTE 6 - ADVANCES FROM NORTHWEST FINANCIAL GROUP, INC
The Company utilized the services (rent and personnel) of Northwest Financial
Group, Inc., an entity controlled by its largest stockholder and CEO, which
totaled $95,928 as of June 30, 2000. The Company paid for these expenses in
its third quarter of 2000.
NOTE 7 - COMPENSATION FOR COMMON STOCK
The majority shareholder contributed 1,950,000 shares of common stock to the
company and then the company issued these shares to various individuals in
exchange for future services. The shares were valued at $0.20 each. The
common stock value of $.20 per share was based upon the purchase price
utilized in the acquisition of WHY USA North America, Inc. - 10,000,0000
shares for $2,000,000 in net assets, resulting in a payroll expense of
$390,000 reflected in general and administrative costs.
NOTE 8 - AMORTIZATION OF FRANCHISE ACQUISITION COSTS
The company amortizes its franchise acquisition costs of $ 2,009,589 over 12
years, based upon the original 3 year franchise agreement which is renewable
for three additional 3 year terms without additional cost to the franchisee.
<PAGE> 8
ITEM 2 - MANAGEMENT DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Introduction
-------------
WHY USA Financial Group, Inc. (the "Company") is in the business of
providing comprehensive real estate services primarily for real estate brokers
and their sales agents and customers. The business is currently conducted
through two recently acquired, wholly-owned subsidiaries: Northwest Financial,
Ltd. ("NWF"), which offers residential mortgage loan services principally as a
loan originator, and WHY USA North America, Inc. ("WHY USA NA"), which offers
a real estate franchise program. The Company's franchise sales are regulated
by the Federal Trade Commission as well as applicable state statutes.
Acquisition of Subsidiaries
----------------------------
The Company's business is that of its subsidiaries which were acquired on
December 31, 1999. In 1999, the Company was a public company with no trading
market and no operations which desired to acquire or merge with an operating
entity or entities. In an arms length transaction in December of 1999, it
acquired NWF and its subsidiary, WHY USA NA, through the issuance of
10,000,000 of its unregistered common shares. The transaction was completed
through a series of steps which included:
* the acquisition of all of the issued and outstanding shares of WHY
USA NA from its three shareholders by Mr. Don Riesterer for a
combination of cash and promissory notes equaling $2,026,400.
* Mr. Riesterer's contribution of the WHY USA NA shares to NWF for
which he was issued 90,000 NWF shares increasing his share
ownership in NWF to 100,000 shares; the 100,000 outstanding
shares of NWF constituted all of the outstanding shares of NWF;
* the issuance of 10,000,000 shares of the Company to NWF, and
the subsequent distribution of those shares to Mr. Riesterer
in exchange for his 100,000 shares of NWF (equaling 100 shares of
the Company for each NWF share.)
* the election of a new Board of Directors comprised of directors of
NWF and WHY USA NA.
As a result of the merger the Company acquired the business operations,
products and assets NWF and its subsidiary WHY USA NA. Because the Company had
no assets, revenues or operations, the accounting successor in the transaction
became NWF.
Merger Treatment
----------------
The Company's acquisition/merger of NWF has been accounted for as a
recapitalization because management of NWF became management of the Company.
The financial statements for the Company's year ended 1999 reflected only the
operations of NWF for 1999. NWF was incorporated in 1998, but did not commence
operations until early 1999. The contribution of WHY USA NA has been
accounted for as a purchase transaction and therefore the Company's Statements
of Operations and Cash Flows for December 31, 1999, did not include the
operations and cash flow of WHY USA NA. The financial statements of WHY USA
NA for December were accounted for separately at December 31, 1999 as those of
a purchased entity. The operations of WHY USA NA have combined with those
of the Company for the six months ended June 30, 2000
<PAGE> 9
Results of Operations
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO JUNE 30, 1999.
The Company incurred a loss of $725,933 in the first six months of 2000
vs. net income from continuing operations of $94,696 in first six months of
1999. The operations have been adversely impacted by increased general and
administrative expenses from $45,460 in 1999 to $726,042 in 2000. $390,000 of
this increase was due to a first quarter compensation expense which resulted
from the transfer of shares to officers and directors in connection with
services performed in consolidating the entities. Other expense increases have
been attributable to the Company's expansion and efforts to raise capital and
costs associates with its acquisition of Why USA NA, Inc. on December 31,1999
The comparative statements of operations do not reflect the operations of
Why USA NA, Inc. in 1999. The Company has accounted for its acquisition of
WHY USA NA, Inc. under the purchase accounting method. The results of Why USA
NA, Inc. have been consolidated with the Company since the acquisition date.
The Company has staffed full time administrative positions in the Why USA
franchise group in an effort to integrate its mortgage loan operations and
sell new franchises. The Company expended over $14,000 in legal and
accounting fees to register its franchise prospectus in over 40 states. The
Company has also expended funds for legal and accounting fees to register its
stock with the Securities Exchange Commission which costs exceeded $17,000.
These types of expenses were not incurred in 1999. The Company overall
expansion efforts have resulted in increased travel, communication costs and
marketing activity which has not yet resulted in revenues to date.
The Company's mortgage related expenses increased from $196,836 to
$271,108 in 2000, on a relative basis client mortgage loan costs were 51.6% of
mortgage sales vs. 83.8% in 2000, which reflects the slower mortgage loan
origination market in 2000. Loan processors and office payroll were higher as
loan production was lower in 2000 and higher staff costs have incurred per
loan. The Company incurred $131,951 in marketing costs for new franchise sales
in the first six months of 2000 vs. $43,000 for the entire 1999 fiscal year
RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2000 COMPARED
TO JUNE 30, 1999.
The Company incurred a loss of $131,904 for the three months ended June
30, 2000 compared to a net income from continuing operations of $55,801 for
the three months ended June 30, 1999. The revenues from mortgage loan
originations have been adversely affected by the increased residential
mortgage rates resulting in almost complete elimination of the residential
refinancing market. The results of Why USA NA, Inc. are not reflected in the
three months ended June 30, 1999, however they are consolidated with the three
months ended June 30, 2000. General and administrative expenses have
increased significantly due to the Company's expansion and acquisition of Why
USA NA, Inc. The Company's salary and benefit expense have increased in order
to promote faster growth and integration of the two businesses. As stated in
the above paragraph the Company has incurred additional legal and accounting
expenses to register its franchise agreement in various states and to register
its stock with the Securities Exchange Commission. The Company's effort in
raising capital and market expansion has resulted in increased travel
expenses. The Company's results reflect the difficulty and increased cost of
originating new residential mortgages vs. refinance residential mortgages. For
the three months ended June 30, 2000 mortgage loan origination fees were
$122,173 resulting in a cost of 78.1% of mortgage loan origination revenue
which was $156,430 compared to June 30, 1999 when mortgage loan origination
fees were $128,821 resulting in a cost of 52.48% of mortgage loan originations
revenue which was $245,445. Please refer to the above paragraph for
additional factors that resulted in the Company's operational loss.
<PAGE> 10
Liquidity and Capital Resources
--------------------------------
Revenues
The Company derives revenues from: (1) franchise fees, (2) new franchise
sales, and (3) mortgage origination fees.
During the Company's second quarter ended June 30, 2000, the Company
total revenues of $528,511 were comprised of the following: 61% of its
revenues came from mortgage loan origination fees, 29% from franchise
transaction fees, and 10% from new franchise sales. Mortgage origination fees
are achieved through NWF; revenues from real estate transactions are generated
by WHY USA NA, the majority of which were derived from franchise fees.
Franchise fees are comprised of ongoing transaction fees paid to the Company
by its franchisees, 76 as of June 30, 2000, based on $95 per transaction or
6% of commission revenues, whichever is less, provided each franchisee must
pay a monthly minimum of $325. On a proforma basis in 1999, total revenues
from operations were $924,835 of which franchise fees from the Company's
franchisees accounted for $366,830 (or 40%) in 1999, new franchise sales
totaled $11,805 (or 1%)and mortgage loan originations totaled $546,200 (or
59%). The first half of the Company's fiscal year shows some shift in revenue
percentages and evidences its current focus on new franchise sales with an 9%
increase in that revenue category. Approximately 65% of such franchise fee
revenues were generated from the franchisees located in Minnesota and
surrounding Midwestern states (Nebraska, Iowa and Wisconsin). In 1998 and
1999, revenues from franchise sales were based on an initial fee of $9,500 for
local market areas with a population greater than 50,000 and $6,500 for areas
with a population of less than 50,000. The Company's new franchise offering
circular provides for one initial fee of $9,900.
The Company's loan origination business has been adversely affected by
increased interest rates as the Federal Reserved Board has increased rates at
each of its last six meetings. Mortgage interest rates have generally trended
upward to the 8 1/2% interest rate level from the 6 1/2 to 7% level prevalent
in the early 1999 time frame. This interest rate increase has virtually
eliminated the housing refinance market, which represented approximately 95%
of the NWF's mortgage loan business in early 1999. In response to the
changing market, and in an effort to more successfully integrate its mortgage
loan business with its franchise business through WHY USA NA referrals, NWF
has begun shifting its loans from refinances to first and second mortgages.
NWF's loan volume in the first half of 2000 consisted of 88 transactions (down
from 99 in the first half of 1999): 25% new mortgages, 43% refinances and 32%
second mortgages. This demonstrates a substantial shift from the breakdown in
the first half of 1999 which consisted of 2% new loans, 86% refinance and 12%
second mortgages. When looking specifically at the second quarter, NWF's
residential loan business consisted of 59 loans: 30% new purchase, 39%
refinance and 31% second mortgages. Compared to the second quarter of 1999,
this again shows the decrease in refinancing mortgages which consisted of 81%
of NWF's 42 loans in second quarter 1999; the balance in that quarter
consisted of 2% new purchase and 17% second mortgage. New home mortgages are
generally larger in size and generate more revenues per transaction. Second
mortgages tend to be smaller and generate less revenue per transaction.
Franchise Agreements
The Company has Franchise Agreements in effect with 76 franchisees. The
franchise agreement provides for:
* initial terms of three years renewable for three additional three
year terms with written notice to the Company prior to expiration
without additional cost to the franchisee, provided the franchisee
has complied with its obligations under the franchise agreement
* an initial franchise fee of $9,900; payment of $95 per transaction or
<PAGE> 11
6% of revenues received from each transaction; a minimum of $325 in
fees in each month; pay not less than $50 per month or more than 10%
of transaction fees per month into an advertising fund if
established; and, pay a $2,500 transfer fee upon an approved
transfer of the real estate franchise.
* Provides for a "protected" territory and sets forth conditions and
provisions regarding non-competition, the use of the WHY USA logo and
proprietary information and selling techniques
* Sets forth the Company's various obligations to provide training and
materials
Investing Activities
The Company purchased $45,605 in computers and communications equipment
to support its telemarketing operations during the first 6 months of 2000.
The Company also invested $15,000 in the acquisition of a franchisee in
Jamesville, Wisconsin, which it intends to operate or resell. The Company
invested $100,000 in the preferred stock of a high risk or B market lending
institution with which it has established a marketing relationship to develop
new higher risk markets for higher risk mortgage loans. This B or C credit
market has not been a source of revenues for NWF in prior periods. The
Company purchased $4,235 in equipment in the six months ended June 30, 1999
and it completed the acquisition of a commercial office building for $422,723
of which $408,818 was financed through debt. The office complex was
ultimately returned to an affiliated entity at December 30, 1999 and is
accounted for as a discontinued operation in 1999.
Liabilities/Contingent Liabilities
The Company has total liabilities as of its quarter ended June 30, 2000 of
$105,229 which includes an advance from Northwest Financial Group, Inc., an
affiliate, of $95,928. The Company paid a $26,400 loan from an officer during
its six month period ended June 30, 2000. As of December 31, 1999, the Company
was not committed under any operating lease agreements. However, on February
1, 2000, the Company entered into a sub-lease with payments of $2,500 per
month through October 31, 2000, with total future minimum sub-lease payments
of $ 22,500. The Company's three other office facilities are rented on a month
to month basis from affiliates.
Financing Activities
The Company has raised $1,114,750 in its private placement and incurred
$6,551 in private placement costs through June 30, 2000. The Company was
advanced $148,157 by Northwest Financial Group, an affiliate, a portion of
which was reduced by the assumption of an advance from a former officer in the
amount of $70,619 by the affiliate.
Overall Cash Flows
The Company's operations consumed $252,709 in cash during the first six
months of 2000, vs. the production $95,028 in cash flows in the first six
months of 1999. These losses in 2000 were funded from the private placement
proceeds. The Company has advanced an affiliated entity $240,000 on a short
term basis to fund mortgage loan originations and has advanced $145,500 to an
affiliated title company for operations and to promote future business
referrals. These notes bear interest at 8% and they are due upon demand by
the company. The company has also advanced $65,000 to two non-affiliated
mortgage origination companies to promote mortgage loan origination business.
These notes bear interest at 8% and they are due upon demand by the company.
<PAGE> 12
Cash Requirements and Expansion Plans
Although the Company realized net income in 1999, and had sufficient
revenues from operations to meet its cash requirements, during the second
quarter of 2000 the Company operated at a loss. This trend will likely
continue as the Company contends with increased operating expenses and
initiates its expansion plans. The Company does not have sufficient cash flows
to meet its current operating expenses as well as expansion plans which it
believes are necessary for the Company to succeed. The number of the
Company's franchisees decreased over the three years prior to the Company's
acquisition of the system, from 91 at year end 1997 to 65 at the Company's
acquisition of WHY USA NA on December 31, 1999. The Company is aggressively
pursuing franchise sales and has increased its franchises to 76 at this date.
The Company intends to continue to aggressively pursue its plans to expand
franchise support and services and to expand its WHY USA Franchise System into
more territories. Although the Company is a national franchiser, it has
achieved mostly regional recognition in the Midwestern States where almost
two-thirds of its franchisees are located. Management believes the Company
must develop a stronger national presence in order to increase revenues from
existing franchisees and increase the number of franchise offices.
Expansion plan needs include: (1) increased working capital to support
the growth of current operations, (2) capital to finance marketing and
operational expansion into new territories, and (3) funding for the
acquisition of one or more established businesses engaged in real estate or
mortgage service operations. The Company is required therefore to seek sources
of financing to fund this expansion and has commenced the private placement
discussed below to fund part of it. The Company's general expansion plans
include some of the following in order of priority:
* expand existing telemarketing service; begin hiring full-time
telemarketing personnel (first five in the next 3-6 months)
* begin placing loan origination agents on site (15 in the next few
months);
* negotiate and buyout certain territories (currently the Diane Butts
territory)
* recruit additional employee/sales representatives
* pursue acquisition possibilities and strategic alliances
* expand web site capabilities including loan origination at website
* offer loan origination for higher risk loans;
* acquire and organize insurance entity
In connection with the Company's capital requirements over the next
year, the Company will require approximately $400,000 for working capital to
fund its operating losses; approximately $400,000 for expansion of
telemarketing, loan agents on site, employee recruitment and territory
buyouts; and $600,000 for strategic alliances and acquisition.
Private Placement Offering
In order to fund a portion of its expansion plans, on January 24, 2000,
the Company commenced a private placement of up to 1,500,00 units at an
offering price of $1.00 per unit. The offering closed on August 31, 2000 with
1,500,000 Units sold for proceeds to the Company of $1,500,000. Units
consisted of one share of common stock and one warrant to purchase a share of
common stock for $1.00, exercisable at any time for three year term commencing
upon the purchase of the Unit. The Company reserved the right to call and
redeem the warrants upon thirty days notice whenever the underlying stock has
been quoted in a public trading market for at least 20 consecutive days at
$2.00 or more. There is currently no public trading market for the Company's
securities. The offering was a "best efforts" offering with no minimum; funds
were available to the Company immediately upon receipt. The Company intends to
use $500,000 of the proceeds towards working capital expenses to support the
growth of current operations and the balance for marketing and operation
<PAGE> 13
expansion and/or acquisitions. $252,709 of these proceeds were expended in the
Company's first six months.
Seasonal Aspects
The Company realizes less revenues in general in the winter months when
the real estate market is slower especially just prior to Christmas.
Inflation
Inflation usually softens the real estate market and increases interest
rates which may also soften the market. In an effort to limit inflation, the
Federal Reserve has increased interest rates which has also had a negative
impact on the Company's loan origination business.
Trends/Uncertainties/Risk Factors Affecting Continuing Operations
-----------------------------------------------------------------
Limited Operating History
Both of the operating subsidiaries of the Company have relatively short
operating histories upon which to judge their progress and potential
profitability. The Company's future must be considered in light of the many
risks and uncertainties, expenses and difficulties encountered by businesses
in the early stages of expansion. The Company must be able to implement and
successfully execute its business and marketing strategy, develop and offer
quality services for its franchises at a competitive price, provide effective
support to its franchisees, develop and implement effective internal business
and financial systems controls, respond to competitive developments in the
real estate industry, respond to the effects of changes in the economy
including rising interest rates or inflation, and attract and retain qualified
personnel.
Need for Additional Financing.
The Company's current cash flow is insufficient to satisfy its cost of
operations, and therefore also insufficient to provide for its current
expansion plans. During the next year, revenues will be unlikely provide
sufficient cash flow to fund operations. As of this date, the Company is
dependent on obtaining funding necessary for both expanded working capital
requirements and expansion through its recently completed private placement
offering. The Company received $1,500,000 in proceeds in the offering. The
Company will be using $1,000,000 of the proceeds from its private placement
for expansion and $500,000 for expanded working capital requirements, $252,709
of which has already been expended during the six period ended June 30, 2000.
The $1,500,000 in proceeds from the offering, however, will be sufficient to
satisfy only a portion of the Company's over-all business plan. There is no
assurance that additional financing will be available from any source when and
if needed by the Company either through debt or equity sources. The inability
to obtain additional funding could prevent the Company from implementing its
business expansion plans. Additional financing could have a negative impact on
the Company's shareholders in the form of dilution.
Reliance on Key Personnel
The Company's future success is highly dependent on the experience and
efforts of its management and key personnel. The loss of services of one of
more of these individuals could have an adverse affect on the Company's
business operations and future prospects. The Company is especially dependent
upon those individuals who have experience with the operations of WHY USA NA
and the WHY USA System although one of its priorities is to train and
familiarize all key personnel with all phases of the Company's various
operations. The Company does not have any key man insurance policies. The
Company is also dependent on its ability to attract and retain key management,
marketing and operational personnel for its planned expansion.
<PAGE> 14
Uncertainty of Market Acceptance
The Company's financial condition and future prospects will depend on it
ability to obtain a substantial and increasing share of the real estate and
mortgage business in the areas in which it operates and its ability to
significantly increase its franchisee network. Although the Company has gained
a toe hold in the Midwestern market, there is no assurance that the Company
will achieve national market acceptance.
Competition
Competition in the real estate franchising, mortgage origination, and
insurance industries is intense and each of these industries includes large
well established firms and companies, banks and other financing institutions,
and specialized service companies. Most of these competitors are
substantially larger than the Company with greater expertise and name
recognition and substantially greater financial, personnel, marketing and
other resources than the Company has. In addition, these competitors have
obtained a large and loyal customers base and have achieved significant brand
name recognition for their services, franchises and marketing networks. The
Company will also compete with local businesses in each locale into which it
decides to expand franchise operations. Small, local competitors could provide
significant competition because they have achieved name recognition, customer
base, and reputation within their locale.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company received subscriptions for 1,500,000 Units in its recently
completed private placement offering which closed on August 31, 2000. The
Company relied on the exemption from registration provided under Section 3(b)
Regulation D, Rule 506 in the offer and sale of the Units in the private
placement. The Company believes it is entitled to rely on the Regulation D
Rule 506 exemption because it is not publicly soliciting investors who are
largely individuals or entities with a business or personal association with
management. The Company believes that the investors: (1) have access to and
have been provided with information regarding the Company as set forth in a
private placement offering memorandum; (2) are aware that the securities are
not being registered under US securities laws; (3) are acquiring the
securities for his/her own account for investment purposes only; (4)
understand that the securities may need to be held indefinitely unless
registered or unless an exemption from registration applies to a proposed
disposition; (5) are "accredited" and/or "sophisticated" having sufficient
knowledge of Company and sufficient investment experience to make investment
decisions, and (6) are aware that no public market exists for the Company's
securities. The Company is paying no commissions for sales of the Units. There
were 54 investors in the offering of which 52 were "accredited". Proceeds
were immediately available to the Company and it spent $252,709 of the
proceeds on working capital deficits during its first quarter.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
<PAGE> 15
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Exhibit No. Description Location
---------- ------------ ---------
2.1 Reorganization between the Black Butte (1)
Petroleum, Inc.
and Triam Ltd. dated March 23, 1983
2.2 Acquisition Agreement between Triam Ltd (1)
and Northwest
Financial Ltd., dated December 16, 1999
2.3 Acquisition Agreement Addendum, dated
December 20, 1999 (1)
2.4 Stock Purchase Agreement dated September
24, 1999 between Northwest Financial
Group, Inc.,WHY USA NA, and
its selling shareholders (1)
2.5 Addendum to Stock Purchase Agreement,
dated December 30, 1999 including Assignment (1)
to Donald Riesterer
3.1.1 Articles of Triam Ltd., dated January 6, 1983 (1)
3.1.2 Amendment to Articles of Incorporation,
March 4, 1983 (1)
3.1.3 Amendment to Articles of Incorporation,
filed March 29,1983 (1)
3.1.4 Articles of Merger, filed on November 9, 1999 (1)
3.1.5 Amendment to Articles of Incorporation,
Jan. 10, 2000 (1)
3.2 Bylaws (1)
10.1 Sample Franchise Agreement (1)
10.2 Sub-Lease on Menomonie Property (1)
10.3 Donald Riesterer - Note for $500,000 (1)
10.4 Donald Riesterer - Note for $850,000 (1)
10.5 Mainstreet Agreement (2)
10.6 Butts Agreement (2)
10.7 Erks Agreement (2)
10.8 Jarvis Agreement (2)
10.9 Regional Sales Representation Agreements (2)
16 Letter re: Change of Accountants (2)
21 List of Subsidiaries (1)
27 Financial Data Schedule (3)
(1) Filed with the Company's initial Filing on Form 10SB on May 10, 2000.
(2) Filed with the Company's amended Form 10 on August 28, 2000
(3) Filed herewith
(B) Reports on Form 8-K
The company filed no reports on form 8-K during the three months ended
June 30, 2000.
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WHY USA FINANCIAL GROUP, INC.
10/30/00 /s/ Donald Riesterer
Dated:_________________ By: _______________________
Donald Riesterer
Chief Executive Officer
Chairman of the Board
10/30/00 /s/ Leslie M. Pearson
Dated:_________________ By: _______________________
Leslie M. Pearson
Secretary and Treasurer
(Chief Accounting Officer)
